Clock - Uranium Supply Crunch and Critical ... - Andrew Johns

Uranium Canada Research | Page 45 of 87Exhibit 59: NAVPS Sensitivity to Changing Discount Rates and Uranium PricesU3O8 Price (US$/lb)-40% -30% -20% -10% RJL LT +10% +20% +30% +40%#### 42 49 56 63 70 77 84 91 9815% 0.75 0.76 0.77 0.82 0.92 1.10 1.31 1.53 1.7912% 0.78 0.82 0.88 0.99 1.14 1.42 1.75 2.03 2.3710% 0.80 0.87 0.98 1.14 1.40 1.76 2.17 2.52 2.928% 0.83 0.95 1.11 1.34 1.79 2.25 2.75 3.18 3.69Discount Rate5% 0.89 1.09 1.38 1.98 2.72 3.38 4.11 4.74 5.473% 0.99 1.23 1.81 2.68 3.72 4.60 5.56 6.41 7.370% 1.11 1.69 2.92 4.49 6.31 7.75 9.32 10.73 12.29Source: Raymond James Ltd.Healthy Earnings Growth. We model strong adjusted EPS growth from FY2011A – 2015Eon cost optimizations, production growth and our ramping price deck: -US$0.08,-US$0.06, US$0.01, US$0.08, US$0.15. We project the company to be back ‘into theblack’ in F2Q13E (quarter ending December 2012).Exploration Upside. We view Paladin as proficient explorationists, having since 2007Aexpanded Measured and Indicated resources by a factor of four via exploration (at acost of ~US$0.60/lb). Key areas to add further pounds include at Kayelekera (regionalexploration on satellite prospects); Aurora (management targeting 180 Mlbs – 200 Mlbswithin ‘a couple field seasons’ vs. our 175 Mlbs and current 120 Mlbs); and pipelineassets in Australia (e.g. proving up Manyingee’s current 24.0 Mlbs JORC resource andbuilding on Angela/Pamela resources, along strike).Valuation Provides Opportunity. Paladin currently trades at 0.63x P/NAV – a discountvs. our producer peers averaging 0.83x, as well as the company’s one-year, pre-Fukushima average of 1.31x. On an EV/lb basis, Paladin trades at US$2.87/lb, vs. globalproducer peers at US$4.74/lb. Once costs begin to come down and steady production isestablished – which we think has been demonstrated over the past few quarters – thestock should trade closer to its historic levels and current peer valuations and againbegin to reflect a takeover premium. We view current price levels as an attractive entrypoint for investors looking to get the jump on wider recognition by the market.Potential ConcernsInconsistent Production. We believe inconsistent quarterly production (see Exhibit 60)over the past few years has led to some investor fatigue, resulting in a discountedvaluation. Negative surprises have resulted from various factors, including generalstruggles with de-bottlenecking and optimizing feed and the processing stream, but alsoevents that were largely out of Paladin’s control, such as labour strikes and inclementweather at both mines, drought in Erongo (Langer), a severe land slip and acid shortagesat Kayelekera, and diesel supply disruptions in Malawi. In the most recent threequarters, we believe Paladin has finally cleared the last of these major hurdles andsteady nameplate output is on the horizon; that said, as stated above, our view is thatthe market will continue to apply discounted multiples until several quarters of steadyand improved output are demonstrated.Raymond James Ltd. | 2200 – 925 West Georgia Street | Vancouver BC Canada V6C 3L2